We already know that price plays a very important role in determining
supply. Price is closely associated to profits and as such the willingness and ability of producers to supply is highly dependent
upon price. If the price of a particular good or service gives producers the possibility of making profits, then theres a
better chance of them supplying that good or service. If, however, the price is too low to the point that it is difficult
for them to cover the cost of production and to earn profits, then firms are unlikely to supply the good or service. Although
price plays a vital role in determining whether or not firms supply goods or services, there are other non-price factors that
determine supply. We discuss some of them here.
One of the non-price determinant of supply is technology to produce new products. 50 years ago there is no technology to supply cellular phones. Today,
firms have the necessary technology to produce state of the art cellular phones that are capable of performing many functions
unheard of 50 years ago. If we go further back in time, say to 500 years ago, the available knowledge and equipment then were
not even able to supply a simple container made of plastic. But today, plastic technology is so advanced that there's probably
no single man-made good today that do not have some sort of plastic component. So technology in itself creates the supply
of goods and services. Further advances in technology can cause changes to the supply of goods and services, shifting the
supply curve to the right of its original position. Take technological advances in cellular phone manufacturing for instance.
The pace of technological advances is so fast that in less than one year, firms are able to produce more units of phones using
about the same, or perhaps less, amount of resources.
Another determinant of supply is government
policy and regulation. The government can make policies that have an impact on supply. Take the supply of palm oil
as an example. About thirty years ago the government made a policy to eradicate poverty by introducing a special land scheme.
Through the Federal Land and Development Authority (Felda), the government encourages, guides, and provides assistance to
the poor to develop land by planting oil palm. This policy not only helped thousands of people out of poverty (in fact there
are many who became millionaires!), it also created a healthy supply of palm oil. Malaysia today is the world No. 1 supplier
of oil palm. Government policies can also eliminate supply altogether. Imagine what would happen to the supply of bread if
the government made a policy that it will no longer allows the import of wheat! Government laws and regulations too determine
what goods and services than can or cannot be produced. Because of the concern on the deterioration of the environment, particularly
around hilly and water catchment areas, the government places stringent rules and regulations on firms desiring to develop
these areas. As the result of these rules and regulations, suppliers may be less keen to supply, say houses, in these areas.
Trade policies too have a great impact on supply. Trade agreements between nations may create the supply of new goods and
services. For example, the Asean Free Trade Agreement (AFTA), may bring into our country goods that were not previously available.
Perhaps, we will soon enjoy the supply of Javanese silk or Cambodia bamboo mats that was unable in this country before.
Finally, other special influences
like weather and climatic conditions, political and social conditions, political and military intervention of foreign
government etc., are also considered as non-price determinants of supply. Wheat, for instance, cannot grow well in Malaysia.
Therefore, there is no supply of wheat unless imported from wheat producing nations like the United States and China. In war
torn countries, the supply of certain goods and services are severely affected to the point that there are no supply of certain
goods or services at all. Pressures placed by certain wealthy western countries on poorer or developing countries too can
affect supply. Iraq, for instance, was not able to supply badly needed medical services to its citizens because of the trade
sanctions imposed by the United States and its allies for more than a decade.